I originally got the reseller's license so I could buy stereo equipment, computer equipment, a cordless phone, and a radar detector. (My rusted-out Datsun 510 was held together by bungee cords and duct tape, but I still liked to drive fast.) I soon realized that if I wanted these things, my friends probably did, too. I could sell them stuff below what they'd pay in the store and still make a profit. So I picked some prices that seemed reasonable, pitched my peers, and the orders came in. I didn't sell a lot, but picking up an extra $100 here and there is a big deal when you're a teenager.
I began offering more items. Somehow I got hold of some military-supply and sporting-goods catalogs. I cut out the pictures of the stuff that looked cool—butterfly knives, throwing stars, pocketknives, and some other things I'd prefer not to mention—and created my own catalog, which I photocopied and gave to my friends. The stuff, as they say, sold itself.
I didn't have a credit card—remember, I was in high school at the time. So I ordered the items COD, cash on delivery. I'd learn when UPS would be coming and feign illness so I could stay home from school. The delivery guy rang the doorbell, I gave him the cash, and he handed over the boxes. I don't know if they do COD anymore, but man, was it exciting back then. No one got rich—and I don't think anyone was injured—but it was a great education. And the lesson stuck.
That'll Be $20, Please
How, and why, to charge real money for real products
Around my senior year of high school, I started getting interested in computers. I also liked music. My collection of tapes and CDs was growing, and I wanted a better way to keep track of what I had and what I'd loaned out to friends.
This was before the World Wide Web. So I tossed one of those junk mail AOL CDs in the computer, installed the program, and convinced my parents it was worth the monthly fee. ("It'll help me research and study!" I argued.) I started searching for tools to help organize a music collection.
There were a ton of them. Most were made with software called FileMaker Pro, a program that makes it easy to create simple databases without really knowing how to program. FileMaker also lets you design your own interface, so you can make things look any way you'd like. Most of the music-organization programs were free and pretty lousy—ugly, hard to use, loaded with unnecessary features.
I decided to figure out how to make my own. I got FileMaker Pro (I paid for it with the stash I'd saved up selling stuff to my friends) and started messing around. After a few months, I had solved the problems I had with organizing my music. I knew what music I had, where it was, whom I had loaned it to, how much I paid for it. The solution was elegant and easy to use. I called it Audiofile.
Most of the music-collection products on AOL's file section were freeware. Download them, install them, and you don't owe the author a dime. There were a few shareware options (you pay if you use them, but it's mostly an honor system), but most were free.
I'd already learned that I really enjoyed making money. And I thought that Audiofile was good. And even then, I thought that if something was good, then it was worth paying for. So before making it available to other AOL users, I added a limit in the program—people could file 25 CDs for free; after that, it would cost $20 to unlock Audiofile and remove the limit.
I remember my first customer. One day my parents gave me an envelope. It came from Germany and had those airmail stripes at the top. I opened it up, found a screenshot of Audiofile printed on a piece of paper—and a crisp $20 bill. More envelopes rolled in. Over the next few years, Audiofile probably generated $50,000—not bad for a kid in college in the early '90s.
The lesson: People are happy to pay for things that work well. Never be afraid to put a price on something. If you pour your heart into something and make it great, sell it. For real money. Even if there are free options, even if the market is flooded with free. People will pay for things they love.
This lesson is at the core of 37signals. There are plenty of free project management tools. There are plenty of free contact managers and customer relationship management tools. There are plenty of free chat tools and organization tools. There are plenty of free conferences and workshops. Free is everywhere. But we charge for our products. And our customers are happy to pay for them.
There's another lesson in here: Charging for something makes you want to make it better. I've found this to be really important. It's a great lesson if you want to learn how to make money.
After all, paying for something is one of the most intimate things that can occur between two people. One person is offering something for sale, and the other person is spending hard-earned cash to buy it. Both have worked hard to be able to offer the other something he or she wants. That's trust—and, dare I say, intimacy. For customers, paying for something sets a high expectation.
When you put a price on something, you get really honest feedback from customers. When entrepreneurs ask me how to get customers to tell us what they really think, I respond with two words: Charge them. They'll tell you what they think, demand excellence, and take the product seriously in a way they never would if they were just using it for free.
As an entrepreneur, you should welcome that pressure. You should want to be forced to be good at what you do.
Model Madness
There are different pathways to the same dollar
Don't just charge. Try as many different pricing models as you can. That's a great way to get better at making money.
Before I launched 37signals, I worked as a freelance Web designer. I charged clients by the hour. I work quickly. But I soon realized that charging hourly penalizes efficiency. If I can finish something in an hour that might take someone else three or four hours, why should I be penalized? So when we launched 37signals in 1999, we charged clients by the project.
